The former chairman of the board of France Télécom says telecommunications companies must outpace — or be inundated by — the coming explosion in data traffic.

A formidable transformation is taking place in the global telecommunications industry. Over the past few years, the operating margins for many telecom companies have shrunk rapidly, as mobile phone service has overtaken fixed-line service, data traffic has outpaced voice traffic, and the old bread-and-butter phone service has become commoditized. Meanwhile, global demand for data services has increased massively, especially with the emergence of video streaming and downloading on the Internet. This “data tsunami,” as it’s been called, has grown in intensity with the proliferation of data-enabled smartphones. Cisco Systems Inc. estimates that the total volume of data circulating on mobile networks will grow from 0.09 exabytes (97 million gigabytes) per month in 2009 to 3.6 exabytes (3.9 billion gigabytes) in 2014, roughly doubling every year. Even with new technologies for compressing data, the ability of mobile networks to absorb this traffic remains limited. The net result is a major challenge for telecommunications companies: finding the capital to build all the networks needed to handle this data while still maintaining the loyalty of customers and the goodwill of regulators, and fending off new Internet-based competitors such as Google, Skype, and Facebook.

In Europe, one major telecommunications company facing this challenge is France Télécom SA. Known for its Orange brand, it offers voice, Internet, and mobile services. France Télécom is the third-largest European telco (after Deutsche Telekom AG and Telefónica SA), with about 193 million customers worldwide in 2010 and approximately 180,000 employees (roughly half of them located outside France). Its annual revenues are about US$80 billion, of which it invests more than 10 percent in building new infrastructure.

Didier Lombard, the chairman of France Télécom since 2005 (and CEO from 2005 to 2010), has championed a vision that might have seemed unthinkable several years ago: Large, incumbent telephone companies as pioneers of digital enterprise. In his years leading the company, he has stepped up innovation in services and content development, expanded service into eastern Europe and Africa, and created Orange Labs, a global network of R&D facilities. These all represented dramatic moves for a company that had been a government-controlled organization before 1998, and part of the French postal, telephone, and telegraph ministry before 1990.

To some observers, they were also unusual moves because Lombard had spent most of his career in the French government. Having started in 1967 at France Télécom as an engineer, he moved in 1988 to the French Ministry of Research and Technology, where he became scientific and technical director. In 1991, he took a post as managing director of industrial strategy at the Ministry of the Economy, Finance, and Industry; in 1999, he became the founding chair of the French Agency for International Investments, making him in effect the government’s chief ambassador to potential investors in his country. He rejoined France Télécom as a senior vice president in 2003, became CEO and chairman of the board in 2005, and was succeeded by Stéphane Richard as CEO in 2010. (Lombard remains chairman.)

Lombard, who is 68, believes that telecommunications companies will have to cope with the data tsunami by finding new business models. In some cases, this will mean pay-for-access Internet services, including various forms of video on demand; it will also mean new applications in healthcare, financial services, and many other industries as digital telecommunications inundate them. It will almost certainly mean new types of partnerships with other technology companies; for example, France Télécom recently began selling the Apple iPad in its retail stores.

Lombard’s stance has landed him in the middle of the debate over Net neutrality — the idea that Internet access providers must offer equal access to all sites, without favoring them on the basis of either the type of content or the business relationship. Although he acknowledges the importance of open access for Internet users, he is also a leading proponent of value-added businesses, which he says are needed to generate revenues to pay for the continuing rollout of new infrastructure. In 2008, his book The Second Life of Networks (coauthored with Georges Nahon and Gabriel Sidhom) was published by Odile Jacob, in French and English editions. Lombard met with strategy+business in New York in October 2010, when he was chairman of France Télécom; in March 2011, he retired, and his successor as CEO, Stéphane Richard, also became chairman.

Articles published in strategy+business do not necessarily represent the views of PwC Strategy& Inc. or any other member firm of the PwC network. Reviews and mentions of publications, products, or services do not constitute endorsement or recommendation for purchase.